Market Development
• EUA prices end week strongly, closing at the week’s high, €7.64.
• Week-on-week rise of 20c as price climbs from low of €7.37 on Monday.
• 15.075Mt entered the market via auctions, highest since w/c 13th April.
• Power unchanged and coal rises slightly as clean dark spread weakens.
• EU ETS Phase IV review likely to be delayed until September according to Miguel Arias Canete.
• The US EPA takes steps to reduce aircraft emissions
Auction Overview
• 4 auctions this week bringing 11.952Mt to market.
Price Action
EUA prices climbed last week in the face of plentiful supply. With 5 auctions bringing 15.075Mt to the market it was a test of the underlying demand and with a 20c rise week-on-week for the front December contract it would appear that demand was strong. From a low of €7.37 on Monday the EUA price climbed to hit a high of €7.64 on Wednesday on the back of strong clean dark spread levels as the EUR strengthened significantly against the USD. However the clean dark spread levels fell back through the week as power ended unchanged week on week and EUR denominated coal prices actually rose. So for the €7.64 level to be re-tested on Thursday and Friday suggests strong underlying demand, presumably from utilities increasing their hedge ratios. The failure of the contract to push through the €7.64 level signals sizeable resistance and a possible cap on gains however after recent weeks of sideways prices a break through this level will lead to a price rally. With auction volume only falling to 11.952Mt this week supply is still plentiful and next week auction supply is ~15Mt again. Away from the immediate price action, it is looking increasingly likely that official publication of the EU ETS review of post 2020 reforms (mainly to allocation methodologies, a key factor for industrials) will be delayed until September. It had been due to be released mid-July. The complex and detailed nature of the reforms has been cited as the reason for the delay. Price Impact: The volumes coming to market this week are lower than last week and if the underlying demand continues then €7.64 will be breached and the market may establish a new, higher trading range. With Greek bailout issues bubbling away beneath the surface there could be pressure on the EUR/USD rate which would harm the clean dark spreads.
Market Stability Reserve (MSR)
No further MSR updates.
Important MSR Dates
• 6th July – plenary vote
• 13th/14th July – potential date for a (rubber stamp) vote of the European Council, the final MSR hurdle.
US Environmental Protection Agency (EPA) moves to regulate aircraft emissions for the first time
The US EPA has found that CO2 emissions from aircraft endanger human health. The finding is the beginning of a process to regulate emissions from the aviation industry. It allows the EPA to domestically enforce the global carbon dioxide emissions standard that is supposed to be being set out by ICAO. The planned date for the release of the ICAO standard coincides with the end of the ‘stop the clock’ ruling from the EU ETS (which would otherwise require airlines to account for all aircraft emissions over European airspace rather than just intra EU flights at present). In a fiercely debated topic and one that ICAO are reluctant to commit to (the date of the release of details of their carbon emissions trading scheme is slipping), the EPA ruling will increase the pressure on ICAO to come up with a global solution to aircraft emissions as more nations (including China and Korea) seek to curb them. By way of background: to reduce the logistical and administrative burden airlines favour a global emissions ‘trading’ system for the aviation industry as opposed to complying with many and varied regulations and schemes worldwide. However with ICAO’s delivery date slipping the threat of full airline inclusion in the EU ETS is brought closer and that will impact the whole market, not just the airlines, by making it shorter. For more details on the background to this subject or on carbon emission trading see our related article: ‘Aviation emissions trading onward upward’ and watch out for a more detailed article later in the week.
